for week ending August 22, 2007 | Release date: August 23, 2007 | Previous weeks
Overview:Thursday, August 23, 2007 (next release 2:00
p.m. on August 30, 2007)
Natural gas spot and futures prices eased this
report week (Wednesday to Wednesday, August 15-22), as Hurricane Dean failed to
have a significant impact on U.S. production in the Gulf of Mexico and moderate
temperatures limited demand. On the week, the Henry Hub spot price declined
$1.46 per MMBtu, or 20 percent, to $5.84. Trading of
futures contracts at the New York Mercantile Exchange (NYMEX) also resulted in
large price decreases. The NYMEX contract for September delivery decreased $1.286
per MMBtu on the week to a daily settlement of $5.578
yesterday (August 22). Working gas inventories reported in today's release of
EIA's Weekly Natural Gas Storage Report were 2,926 Bcf
as of Friday, August 17, which is 12.8 percent above the 5-year average
inventory for the report week. The spot price for West Texas Intermediate (WTI)
crude oil decreased $4.06 per barrel on the week to $69.30 per barrel, or $11.95
per MMBtu.
Natural
gas spot prices tumbled early this calendar week as it became more certain that
Hurricane Dean's path would avoid U.S. producing regions. Dean followed a path
across energy-related infrastructure in Mexico (with the precise impact still
unknown), but the hurricane did not come close to production infrastructure
located in the U.S. waters of the Gulf of Mexico. The result was only a slight
disruption of industry activity in the Gulf, and production shut-ins never
exceeded 100 million cubic feet per day, according to the Minerals Management
Service. On the report week, the Henry Hub price fell about 20 percent, or
$1.46 per MMBtu, to an average of $5.84 yesterday (Wednesday, August 22). Other
market locations in the Gulf region registered similar decreases between $1.30 and
$1.68 per MMBtu, although the price for delivery in Florida (where natural gas
is primarily used as a fuel for power generation to meet air-conditioning
needs) remained the highest in the country at $9.47 per MMBtu yesterday. The
South had plenty of heat as demonstrated by the high prices in Florida, but moderate
temperatures blanketed the Northeast for a couple days during the report week.
For example, the high of 59 degrees on Tuesday, August 21, in New York City was
23 degrees below normal. The largest price decreases on the week were in fact in
the Northeast, with the average price for the region falling $1.61 per MMBtu to
a regional average price of $6.18 yesterday. With the exception of one market
location (Questar), market centers in the Rockies recorded decreases between 9
cents and $1.24 per MMBtu. The regional average price for Rockies market
locations was $4.04 at the end of the report week. West of the Rockies, weekly
decreases of over $1 per MMBtu were registered at
market locations in southern California, Arizona, and Nevada.
NYMEX
futures registered steep declines this week, including the largest single-day
movements in nearly 20 months. A 97-cent decline for the September 2007
contract on Monday was the largest decline since the January 2006 contract lost
$1.26 per MMBtu on December 27, 2005. The decrease came as it became clear that
Hurricane Dean would not have an impact on Gulf production (at least on the
U.S. side of the Gulf). On the week, the September contract declined a total of
$1.286 per MMBtu to $5.578. At this price level, the September contract is
priced more than 53 cents less than the close of the August 2007 contract and
$1.238 less than the September 2006 expiration price. Without exception,
futures contracts in the 12-month strip and even further out also registered
large decreases for the report week as NYMEX trading resulted in declines in
all three trading sessions this calendar week. As a result, the 12-month strip closed
yesterday at $7.32 per MMBtu, a decrease of 77 cents or almost 10 percent since
last Wednesday.
Working
gas in underground storage was 2,926 Bcf as of August 17, which is 12.8 percent
above the 5-year average inventory level for the report week, according to
EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection for the week was 23
Bcf, which was significantly lower than both the 5-year average net injection
of 61 Bcf and last year's net injection of 54 Bcf. As a result, the difference
between current inventory levels and the 5-year average decreased to 333 Bcf,
and the difference between current inventories and last year's level decreased
77 Bcf. The pace of injections this year has surpassed even last year's
record-breaking refill, even though this is the second consecutive week in
which the level of injection was lower than it was in 2006. The slowdown in
injection activity likely resulted from increased weather-related demand. The
latest cooling degree-day (CDD) statistics published by the National Weather
Service for the period roughly coinciding with the week covered by this storage
report show that weather-related gas demand was likely higher than last year in
all Census Divisions with the exception of the West South Central. For the
United States as a whole, CDDs totaled almost 30 percent more than last year. The
large temperature deviations relative to both last year's level and normal suggest
demand for natural gas as a fuel for power generation to meet air-conditioning
needs would have been larger this year compared with last year's or normal
consumption levels. (see Temperature Maps)
EIA Releases Report on Natural Gas Price
Volatility: The Energy Information
Administration (EIA) has published a report that analyzes price volatility in
the spot natural gas markets. The report titled An
Analysis of Price Volatility in Natural Gas Markets states that
a high degree of price volatility seems inherent in natural gas markets because
of the nature of the commodity. However, the annual volatility during 1994 and
2006 does not exhibit a clear overall trend.Based on statistical and graphical analysis, the report draws several
conclusions about trends in and influences on volatility. According to the
analysis, monthly volatility is higher during the colder months when short-term
demand peaks.Additionally, weekly price
volatility increases as storage levels move away from the 5-year average, and
this effect is more pronounced during the months that surround the start of the
heating season. This relationship is independent of whether storage levels are
above or below the 5-year average. While there are seasonal trends in
volatility levels, there is no clear increasing or decreasing trend. Finally,
although volatility, which is defined on the basis of percent changes in market
prices, may be stable, this trend obscures the absolute impact on costs or
revenues as the market price rises. Volatility may not be increasing, but even
under relatively low levels of volatility, financial risk can be large as daily
price movements increase.
MMS Activates its Continuity of Operations
Plan<: In the wake of Hurricane Dean, the Minerals Management Service (MMS)
has activated its Continuity of Operations Plan to monitor the activities of
platform and rig operators in the Gulf of Mexico, as a number of operators have
shut in oil and gas production. Based on data from offshore operator reports
submitted as of August 22, personnel have been evacuated from a total of 19
production platforms, which is 2.3 percent of the 834 manned platforms in the
Gulf of Mexico. Personnel from 3 rigs have also been evacuated, which is equivalent
to about 3 percent of the 101 rigs currently operating in the Gulf. MMS also
estimates that 24,815 barrels of crude oil per day or about 1.9 percent of the
production in the Gulf remains shut in, while 83 MMcf of natural gas per day,
or more than 1 percent, was shut in as of Wednesday. The latest numbers reflect
decreases in shut-in production since Monday, when daily volumes of 41,967
barrels of oil and 100 MMcf of natural gas were shut in. Since Monday, however,
the number of platforms evacuated has increased from 10 to 19 as of yesterday.
Under the Continuity of Operations Plan, all facilities will be inspected once
the storm passes. Production from undamaged facilities is expected to be
brought back online immediately, while facilities that have sustained damage
may take longer to resume production.